Posted by: Josh Lehner | November 14, 2018

Oregon Economic and Revenue Forecast, December 2018

This morning the Oregon Office of Economic Analysis released the latest quarterly economic and revenue forecast. For the full document, slides and forecast data please see our main website. Below is the forecast’s Executive Summary.

Current economic growth remains strong. Nearly all leading indicators are flashing green, signaling solid gains in the near-term. However, the economy is set to slow moving forward for a number of reasons. First, growth must slow to a more sustainable rate. As the U.S. and Oregon reach full employment, supply side constraints will work to slow growth. These include a tight labor market, infrastructure, higher energy costs, capacity utilization and the like. Such hurdles to growth do not prevent firms from expanding and propelling the economy, but they do require time, plans, and money to overcome. The low-hanging fruit of growth is gone in a mature expansion.

Furthermore, uncertainty surrounding the economic outlook increases over the course of the upcoming 2019-21 biennium. The primary drivers of uncertainty relate to federal policies and the magnitude of their impact on the economy. As the tax cuts and spending increases play out at the federal level, fiscal policy will turn from a driver to a drag on growth in 2020. Similarly, monetary policy will have transitioned from accommodative to neutral, and likely even restrictive in a couple of years. The full impact of the Federal Reserve’s rate hikes that began in late 2015 will be working to slow the economy.

Between today and the next recession, whenever it may come, the Oregon economy will continue to hit the sweet spot. The strong labor market is driving employment rates higher and poverty rates lower for all ages and racial and ethnic groups across the state. One result is household incomes are reaching historic highs on an inflation-adjusted basis. The feel good part of the economy is clearly here.

Oregon’s economic outlook faces significant uncertainty a couple of years down the road, but there is relatively little risk to the outlook over the remainder of the current biennium.  The same cannot be said for Oregon’s state revenue forecast, which faces a tremendous amount of uncertainty in the near term.

Thus far during the 2017-19 biennium, growth in Oregon’s major revenue sources has been consistently stronger than gains in the underlying economy would suggest. Much of the strong revenue growth can be traced to temporary factors, including the response of Oregonians to federal tax law changes. State tax liability has been boosted somewhat due to the federal reforms, but recent payments have been larger than what could reasonably be expected due to the direct impact of the law changes.  It is likely that collections will cool down going forward as households and businesses reconcile their annual tax bills.

One facet of the federal tax reform that has become clearer in recent weeks is the impact of repatriated foreign earnings.  While a significant amount of repatriation is occurring, initial estimates of the flow are proving to be too large, and have been revised downward.  Given the large degree of uncertainty surrounding this one-time revenue boost, policymakers in Oregon channeled corporate taxes associated with repatriation outside of the General Fund, with most going to reduce unfunded pension liabilities for school districts.  These funds will be pulled out of the revenue stream during the next biennium.  The newly lowered estimates imply less will be pulled out next biennium.  Also, since most repatriated profits are returned to shareholders in the form of stock buybacks and dividends, personal income tax collections have been revised downward as well.

Heading into the next biennium, uncertainty about the performance of the regional economy will become paramount.  Growth will certainly slow to a sustainable rate in the coming years, but the path taken is unknown.  Capacity constraints, an aging workforce, monetary policy drags and fading fiscal stimulus will all act to put a lid on growth a couple of years down the road.  However, the exact timing and steepness of this deceleration is difficult to predict, leading to a wide range of possible revenue outcomes for the 2019-21 budget period.

See our full website for all the forecast details. Our presentation slides for the forecast release to the Legislature are below.

Posted by: Josh Lehner | November 8, 2018

Oregon’s Energy Intensity and Household Spending

Energy costs can have big impacts on the economy. This has certainly been the case historically with the 1973 oil crisis and U.S. recession being a prime example. More recently we can observe the impact of gas prices on American automobile purchases. When gas is near $4 per gallon, we buy more cars, but when gas is $2 or $3 per gallon, we buy more trucks and SUVs. Furthermore, we know energy spending is a larger share of low and moderate income household budgets. When prices are higher, households have less money to spend on all other goods and services (or to save) given they need to put gas in the tank to get the kids to school, drive to work, and the like. As such, whenever there are big swings in energy costs, the question is what impact will that have on the U.S. economy, and then how will that impact the Oregon economy as well.

This was a big discussion four years ago after oil prices crashed, and again this year as oil rose back up to around $70 per barrel (it is now back down to around $60 per barrel). Well, the standard story our office tells is that Oregon sees a benefit when prices are low. We are not a mining or oil or gas extraction state. So low prices does not mean less local mining activity, employment, or investment, unlike in North Dakota or Texas. But local households do reap the benefits via their household budgets. They have more spending power, which should help drive higher sales for local businesses. Now, Oregon does have firms that supply the mining industry elsewhere in the country, so there are local feedbacks, they’re just more of a secondary impact.

That is all well and good but the story is a bit more complicated than this. In fact the impact of energy prices is more muted today, and even more so in Oregon than in in the past. Let’s start first with the concept of energy intensity. This measure looks at how much energy is used for every unit, or dollar of economic output. As is the case nationally, Oregon’s energy intensity has been falling for decades. We use approximately the same amount of energy today as we did back in the late 1990s. However our population and economy is significantly larger. As such our energy intensity has continued to decline.

These declines are seen across the various segments of the economy including commercial, industrial, residential, and transportation uses. There are a number of factors behind these declines which we will get to in a minute. But first, one big takeaway from this fact is that given energy use is a smaller share of the economy than before, it means swings in energy costs will have less of an impact than before. This works in both directions. In recent years it means that Oregon saw less of a benefit, or less of a boost to spending when we had low oil prices because it is a smaller slice of the economy.

Factors helping drive the decline include, but are not limited to: energy efficiency, transitioning from more energy-intensive manufacturing to less energy-intensive manufacturing, the growth in services overall in the economy including more office-based work, and simply less energy use per person or per household.

It’s this last factor that was recently part of the discussion we had with our economic advisors. Oregonians spend less money on gas and energy and also on motor vehicles and parts than the national average. This is true if we look at our spending as a share of personal income, or if we look at our average spending per household. Now, this wasn’t always the case. Back in the early and mid-2000s, Oregonians spent more on energy and automobiles than the US, for the most part, but this relative pattern has clearly shifted since.

Given we see this similar pattern in energy spending (above) and in automobiles (below) it points toward Oregonian driving behavior as being a big part of the story. It is not just the Pacific Northwest’s cheap hydropower driving lower energy spending. As discussed previously, total vehicles miles traveled in Oregon first peaked in 1999, nearly a decade before the US overall. Now, VMT has picked up in recent years and recently set a new record, but Oregon’s VMT per person remains low when compared to driving behavior across the country, and from patterns seen during the mid-80s through early-2000s.

So what do we make of all of this? In a macroeconomic sense it all points toward energy price swings having less of an impact on growth and consumer spending then we previously thought. The economic growth seen in industries and sectors that aren’t energy intensive is a big factor, as is the fact that Oregon households spend significantly less on energy and automobiles than their national counterparts. In earlier work, Joe Cortright at City Observatory calls this the “green dividend.” And if you add up the statewide spending patterns, adjust for Oregon’s larger decline in energy and auto spending, this green dividend is a big number. Against a counterfactual where our spending patterns didn’t diverge from the US in recent decades, Oregonians today spend approximately $2 billion less on energy and automobiles. Now we turn around and spend a larger portion and higher amounts on other products and services, housing included. But our patterns do differ than the nation’s, and we have seen a big shift over time.

Posted by: Josh Lehner | November 2, 2018

Portland’s Economic and Housing Outlook

This morning I am presenting at the Home Builders Association of Metropolitan Portland’s annual forecast breakfast. It’s been a few years since I’ve been able to attend again, so we have lots of topics to catch up on! The National Association of Home Builders’ chief economist, Robert Dietz, will also be presenting. I am looking forward to hearing his thoughts on the market and what is happening elsewhere around the country. A few of my remarks and a copy of my slides are below.

It’s a bit of a strange time right now as the housing market rebalances. The near-term data shows new construction activity and home sales flattening out both nationwide and in the Portland area. Households budgets for those looking to buy are getting maxed out now that interest rates are rising, and the carrying cost of a mortgage is increasing more than just due to rising prices. So what is the outlook?

From a fundamentals perspective, the housing outlook remains bright. The demographics already baked into the cake, plus ongoing migration means a growing and thriving region like Portland needs to continue to add new housing supply of all types. Yes, the top end of the apartment market is saturated. This has some spillover impacts on homeowners or at least those on the cusp or buying or renting given rents are softening. But this is a near-term, or temporary imbalance. If the population forecasts are reasonably correct, the region needs to continue to build approximately the same number of units each year in the coming decade.

As I discussed earlier this year at the Multifamily NW breakfast, there are at least three main channels in which this underlying forecast will be wrong. I have fleshed those out a bit more for this morning’s presentation. What has been somewhat surprising to me is that even in a moderate recession scenario — THIS IS NOT A RECESSION CALL, JUST A HYPOTHETICAL SCENARIO — the demand for housing in the Portland area will remain pretty strong. This is due to the demographics, where Millennials will fully age into their root-setting, and home-buying years. Household formation should be stronger than underlying population growth for this reason. Additionally, the baseline outlook from today moving forward is relatively weak. The business cycle has matured and population growth rates have peaked. Given the slower baseline, a recession scenario is not quite as big of a deviation compared to if the baseline forecast continued these strong gains every year into the future.

The bottom line here is that our office does not think housing will be the same issue next recession, whenever it comes, as it was last time. Most importantly from an economic perspective is we are not seeing the big run-up in household debt. The high prices are primarily about a relative lack of supply in the face of stronger demand. Furthermore, those strong housing demographics also mean the downside to housing next recession is a bit more limited than before. Now, this does not mean housing starts won’t fall — they will — or that home prices won’t decline — they probably will some. It just means we are highly unlikely to have an exact repeat of the housing collapse and Great Recession.

Posted by: Josh Lehner | October 31, 2018

Bend’s Economic and Housing Outlook

This morning I am part of the Bend Chamber of Commerce’s Economic Impact Breakfast. Tom Potiowsky, former state economist and current Northwest Economic Research Center director will deliver the keynote, while Employment’s regional economist Damon Runberg will set the stage and moderate the discussion. Should be a great event. My presentation focuses on the statewide economic outlook but I have incorporated some local material as well. What follows are the Bend and Central Oregon specific slides from my presentation.

First, Bend’s labor market is tight. As we’ve discussed before, job growth of 5, 6, 7% annually is the norm in Central Oregon during expansions. That said, like the state, growth is slowing in Bend as the ranks of the unemployed and those out of the labor force shrink. Everyone had a job again and the strong economy has pulled workers back into the labor market. Slower growth by itself should not be a concern. In fact lots of good economic things happen at full employment.

Chief among those good things are wages rise, as do household incomes. The biggest driving force behind Bend’s income growth in recent years is the strong economy. More residents are working and an even bigger increase is seen among those working full-time. Households in the middle and bottom part of the distribution are fully reliant upon the labor market to generate any sort of income gains. All they have are wages. They don’t have capital gains, rental properties or the like to boost income.

As is always the case, when there are jobs available, migration flows return. Central Oregon attracts young families and retirees for the most part. And we all know the quality of life, scenic beauty, and outdoor recreation opportunities are second to none. These migration flows are even stronger in Bend than throughout the rest of the state in recent decades. Today only 1 in 3 adults in Deschutes County was born in the state. Another 20% were born in — you guessed it — California.

These migrants provide an ample supply of young, skilled workers for local businesses in addition to increased consumer demand and sales. Looking forward, Bend is expected to add just under 5,000 new residents a year, and just under 2,000 new households a year for the next decade. Obviously they need a place to live! Housing supply is beginning to pick up in Central Oregon but has yet to fully catch up with the population gains. As such, affordability is a local challenge, just as it is statewide.

When we look at where the household growth is going to come from, it largely follows the overall migration patterns. The largest increases will be seen among older households. Now, this growth is not just due to migration, but also due to the aging of the population. Many of these households already live in Central Oregon. However, much of the growth seen among the 20, 30 and 40 year old households will be new residents and newly formed households. It is important to keep in mind that in terms of housing, by one’s mid-30s there is a 50/50 split between renters and owners. Last time I crunched the numbers for Bend that breakeven point was 37 years old, but that data is a couple of years old now.

For more on Central Oregon see all the great work Damon does as the regional economist.

Posted by: Josh Lehner | October 26, 2018

Hammer Don’t Hurt ‘Em

Despite a modest correction in stock prices, the near-term outlook remains bright. The economic data flow continues to be healthy. The next 12-18 months should see good growth, in part due to the federal fiscal stimulus (tax cuts, and the spending increase are just now hitting the economy). However, economists are increasingly pointing towards 2020 or 2021 as a period of weakness. At this time the spending increases are set to fade, and monetary policy will have moved from accommodative to neutral, and even, maybe, restrictive depending on how the Fed navigates the next 18 months. It takes time for interest rate increases to slow economic activity, so rate hikes today cool growth 12, 18, 24 months down the road. Unfortunately for our office, this period of potential weakness lands right in the middle of the upcoming 2019-21 biennium. Today we are meeting with our economic advisors to nail down the outlook that will feed into the upcoming revenue forecasts which will first set the bar for the Governor’s recommended budget, and then in a handful of months for the Legislative Adopted Budget which also sets the numbers for any possible kicker next biennium.

Trying to forecast a period of prolonged weakness, or even a possible recession 2 years in advance is a fool’s errand — there is just too much time, too many potential variables and policies taken or not to alter the course that far in the future. That said, it is economists’ job to highlight risks for policymakers and to think through plausible scenarios as forecasts are used as planning tools. So, should all this come to pass and we see some weakness or even a recession, what would that look like? Obviously it’s hard to tell. But right now many economists are thinking the next recession will be more like the 1990 recession and not like the dotcom crash or Great Recession, at least in part because there is no obvious asset or investment bubble today. Neil Irwin in The New York Times had a great article recently on the 1990 recession.

Nationally, the 1990 recession was mild, although what followed was our first real jobless recovery which has now become the norm since then. The story is largely the same here in Oregon. And by some measures Oregon actually saw a smaller recession than the U.S. at that time, which is unusual. So if the next recession is more likely to resemble 1990 than the Great Recession, is there anything we can learn from that experience?

Well, that’s in part what we’re tying to discuss with our advisors today and in the coming months. If we dig into the data, we see that Oregon was not spared the pain of big manufacturing job losses. Oregon lost just as many jobs as the US did at this time. But many of our consumer service sectors and industries more closely tied to population did outperform the U.S., significantly so in some cases.

That’s because population growth and in-migration was quite strong at this time. We typically think that during a recession people hunker down and don’t move. And this is largely true. Look at the early 1980s, early 2000s and the Great Recession. Migration slowed significantly and even turned negative back when the timber industry restructured. Not so in 1990.

Now, banking on this pattern to occur probably shouldn’t be the baseline outlook given 1990 is the outlier and not the typical pattern. Our office remains bullish on the near-term outlook. But should any recession come to pass, we would expect migration flows to slow and Oregon to once again be more volatile than the typical state.

Posted by: Josh Lehner | October 19, 2018

Fun Friday: Alcohol, Marijuana, and Tech

Happy Friday everybody! A friend of the office recently noted that we haven’t been discussing beer nearly enough lately. And it turns out she was right. After our office’s first, real recreational marijuana forecast last year and the Oregon Vice research and presentation I did, our office has been mostly focused on the evolving macro environment this year (more next week). Given this, and the fact that our office recently reconvened our marijuana forecast advisory group, I thought I should rectify the oversight.

Let’s start first with an update to the comparison you never knew you wanted, but are now glad you have. Over the past decade, or since the start of the Great Recession, Oregon’s thriving alcohol, and marijuana sectors have added more jobs than one of the state’s economic pillars: the high-tech cluster. Of course these economic sectors are not directly related, but instead are being used to help frame the discussion for just how fast, and how many jobs are being added here in the state.

We use this chart regularly in our presentations to discuss a variety of legitimate economic topics, including the transition from hardware to software within the tech industry, in addition to the true economic impact from vice sectors lies not with the growing and retailing of the products, but in all the ancillary and support industries that grow along with consumer demand and evolving markets. At its roots, Oregon’s alcohol cluster is value-added manufacturing where firms take raw ingredients — many of which are locally-grown — and turn them into a much more valuable products sold across the state and increasingly around the world. Furthermore, a plurality of brew system manufacturers in the U.S. call Oregon home. So when a new brewery opens up elsewhere in the country, there is a good probability they are buying and using Oregon-made equipment.

Our office’s hope is this type of cluster similarly develops around the recreational marijuana industry as well. Prices continue to plunge as the market matures and marijuana commoditizes. But increasing market activity in extracting oils, creating creams, making edibles in addition to hopefully building up the broader cluster of lab testing equipment, and branding and design firms, means Oregon will see a bigger economic impact from legalization.

Note that the reason for the range of marijuana-related employment in the chart is due to data availability. Our friends over at Employment do a great job of matching employment records to OLCC licensed businesses. Their latest count totals 5,300 jobs in Oregon. Now, these are payroll jobs (technically jobs subject unemployment insurance). Given harvest seasonality, part-time work, independent contractors and the like in a still federally illegal industry, it is reasonable to expect these payroll jobs to be more of a lower bound. However, if we turn to OLCC marijuana worker permits, those currently number 36,000 which is too high. Triangulating a more reasonable estimate — either via a rough sales to employee ratio, or scaling by a similar factor as food handler cards to food service jobs — shows there are probably about 11,000 or 12,000 marijuana-related jobs in the state today.

Finally, I have also been updating my Oregon brewery production numbers to track start-ups, the state’s legacy breweries, and also closures or failures. Given the outright declines in the beer industry overall, and slowing growth in craft beer sales, there has been quite a lot of hand-wringing over what it means. No doubt, retail shelf space is limited and the competition is fierce. Some breweries are seeing substantial declines in their sales and production. However that does not mean the industry overall is unhealthy. In fact, brewpubs continue to thrive, and some of the bigger breweries are revamping their tasting rooms, and adding more locations for better direct-to-consumer sales given they maximize revenue per pint this way. Elon Glucklich at The Register-Guard has great article on this, with a focus on Eugene breweries.

However, as Warren Buffet said, “only when the tide goes out do you discover who has been swimming naked.” For breweries this means that business plans, practices and operations matter considerably more in a world of slowing growth then they do during the go-go days of double-digit gains every year. Slower growth can strain business finances, eventually leading to more closures or failures. So, are we seeing this here in Oregon? So far the answer is no. Yes, the absolute number of brewery closures has risen in recent years, but the closure rate has barely budged. The reason is Oregon has quadrupled the number of breweries in the state over the past 15 years. As such, we should see more closures given there are so many more potential places to run into issues — be they low sales, high costs, personal problems, or the like. To date, Oregon breweries are closing at a significantly lower rate than other types of businesses across the state.

UPDATE: It it also helpful to put the number of closures in perspective with the number of openings. Economists tend to refer to this as churn. There are always new businesses forming and others going out of business. Additionally around 1 in 8 workers in Oregon are gaining or losing a job every single quarter. While topline economic indicators tend to be pretty stable, or show solid gains, there is an incredible amount of churn below the surface. This occurs in good times and in bad. So far, even as brewery closures are rising some overall, the number of new breweries in the state continues to outpace closures by a margin of 4 to 1 in the last three years.

Next week I will have a few posts on the macro outlook, as we meet with our economic advisors to nail down the 2019-21 biennium outlook. Our forecast will be released Nov 14, at which time we will also have an updated recreational marijuana forecast that incorporates all of the latest data and input from our advisors.

Last but not least, a special thank you to Beth Dyer at Employment for helping me get all of the industry data to build the clusters!

Posted by: Josh Lehner | October 5, 2018

Oregon Personal Income Update, 2018q2

Last week the U.S. Bureau of Economic Analysis released both the latest estimates for state personal income along with their comprehensive revisions they do every 5 years. These big, comprehensive revisions occur first at the U.S. level and were released over the summer. They have now filtered down to the state level estimates and are pretty big here in Oregon.

First, however, let’s take our standard snapshot of how incomes are growing here in Oregon over the past year and the past quarter. Overall personal income in the state is up 4.7% over the past year, and up 4.4% over the past quarter (on an annual basis). This growth was pretty consistent across the various types of personal income, from wages, to dividends, and the like. The one exception is the volatile farm income which gets pushed around not just by harvest, but the value of the US dollar and commodity prices. All told, Oregon’s income growth is above average, but is no longer growing at the peak growth rates seen a few years ago.

While the latest data brings good news and confirms what we’ve seen in the more timely economic data, the bigger story from the release are the comprehensive revisions. As you can see below, much of history remains the same, but Oregon’s income has been revised upward pretty significantly in recent years. This revision amounts to about +$7 billion, +3.6%, in 2017 alone.

The importance here is twofold. First it indicates that Oregon’s economy has performed better than we first thought. The total amount of personal income earned by Oregonians is larger than we thought based on the prior estimates. This is good news! Second, however, these revisions mess with our underlying forecasts as we use this data in our economic and revenue models. Everything else equal, these upward revisions mean more income for Oregonians moving forward because the jump-off point from where history ends and our forecasts begin has now been shifted upward. That said, this does not necessarily translate into more tax revenue in our forecasts because it’s not like tax collections were also revised higher for 2016 and 2017. We know how much money was collected. So the impact here on our forecasts is more about how do these revisions, plus everything else going on in the economy, affect our expectations moving forward. We are meeting with our advisors next week, and again in a few weeks as we work to finalize our next forecast — due out November 14th.

In terms of the breakdown of the revisions, an interesting pattern is seen. Two-thirds of the revisions came in investment and business income. This pattern largely matches the U.S. revisions over the summer. As the BEA noted earlier in the year, they were incorporating updated and new IRS tax return data for corporations, sole proprietors, and partnerships. Essentially, the prior income figures had significantly underestimated these revenues (but we have certainly seen this growth on the tax collection side in recent years).

The remainder of the revisions had less of an impact on the topline. That said it was interesting to see that benefits for workers (supplements to wages) were revised up more than wages. In recent years we have seen a gap emerge between different wage measures here in Oregon; namely the BEA measure of wages has lagged withholdings and also the QCEW wages. These revisions help correct some of that gap.

Finally, these income revisions have boosted Oregonian incomes to a larger degree than the typical state. As such, Oregon’s per capita personal income, relative to the nation, has been raised. Oregon currently stands at 93% of the U.S. average, the highest point we’ve seen since the dotcom crash in 2001. Oregon’s average wage currently stands at 94% of the U.S. average, the highest point we’ve seen since the mills closed in the 1980s. These gains are driven by the stronger economic expansion Oregon has experienced in recent years. The expansion is reaching all corners of the economy and of the state. And Oregon’s median household income is now on par with the U.S. overall.

 

Posted by: Josh Lehner | September 26, 2018

Peak Renter in the Rearview

Three years ago our office asked “Is 2015 Peak Renter?” We laid out a straightforward case examining the three main underlying drivers for the shift into rentership over the previous decade: household finances, demographics, and preferences and tastes. The question was not whether the pendulum would swing back toward ownership, it definitely would, but rather when would it would begin to swing back. Overall that piece got a lot of attention. Bill McBride of Calculated Risk even talked about it on one of his Bloomberg TV appearances! But I also think it is fair to say the work was also greeted with a healthy amount of skepticism at the time. Weren’t we destined to be a nation of renters forever?

Of course over the past couple of years ownership has rebounded nationwide and depending upon the data set you look at, Peak Renter occurred in 2015 or 2016. Furthermore, these gains are not concentrated in one particular region or another, but are spread across much of the country. Among the 100 largest metro areas, 79 of them saw ownership rates increase last year. There has been a steady increase in the number of large metros with rising ownership rates as seen below.

Here in Oregon ownership rates are increasing in the Bend, Eugene, Medford, Portland, and Salem metro areas. Additionally, the Albany, Corvallis, and Grants Pass MSAs have seen ownership rates stabilize in recent years if you look through the year-to-year noise. That said, the largest ownership rebound in Oregon is happening in the Portland region. Ownership rates bottomed in 2014 and are now nearly two-thirds of the way back to where they were prior to the bubble bursting and foreclosure crisis.

Maybe somewhat surprisingly, this strong rebound in ownership is concentrated among the younger households — the region’s 20- and 30-somethings. As discussed last week, this increase is driven by young, married-couple families. Now, Portland does not have especially high ownership rates. Among 25-34 year olds, Portland homeownership rate ranks 68th highest among the 100 largest metros in 2017. That said, this increase in recent years is the second largest among these same regions.

The big homeownership question was not whether Millennials would buy more homes as they aged, be it detached single family, townhomes, or condos. But whether or not they would do so at a faster or slower pace than life cycle trends suggested. Remember, even in recent years, by the time you are in your mid-30s, the population is 50/50 in terms of owners and renters. Well, it turns out to be a little of both. Millennials are living on their own, getting married, and buying homes at a slower pace or at a later age than previous generations, but the ownership rate itself is rebounding faster than expected at the same time. It’s competing long-run and short-run impacts coming to a head, if that makes sense.

Finally, during and after the foreclosure crisis, single family rentals increased as investors snapped up properties at bargain prices. There was a lot of discussion about whether or not this was a good development and what it meant for the housing market. What’s interesting in recent years, however, is that single family rentals in the Portland region, and across the country, are declining. Investors and landlords are selling their properties as prices have rebounded, pocketing a big increase in home equity along the way.

This added wrinkle means we are seeing a shift in the types of rental properties in the region. The number of apartments continues to increase with new construction, but the overall rental market has expanded less given this decline in single family rentals. Conversely, the ownership market has expanded a bit more than the new construction numbers indicate as more homes are being converted (reconverted?) from rentals into ownership product. This impact is not small. We have seen around 10,000 fewer single family rentals in recent years. This is equivalent to 1-2 years of new apartment, or new single family supply! This shift under the surface of the overall market helps make sense of the new construction figures. It is not just about new residents, or newly formed households moving into the new apartments, but also about reallocation of existing households across or between product types.

Bottom Line: Homeownership is increasing in recent years. Given the ongoing economic expansion, and demographics, the total number of homeowners will certainly increase, while ownership rates are likely to as well, or at least hold steady. Some housing economists are particularly bullish on the 2020s when the Millennials will be in their 30s and 40s, or at ages when most households own. That said, today’s younger households are buying homes a bit less than previous generations at the same age. There is a generational effect influencing the housing market both from an ownership perspective and a type of housing, or the location of housing wanted as well. There are a lot of levers here to pull that can adjust to meet the needs of a growing population. Here in Oregon, we will see an increase in both owner and renter households due to population growth. The key is to continue to add new supply across a range of product types to ensure availability, and help with affordability.

Posted by: Josh Lehner | September 21, 2018

Fun Friday: Marriage in Oregon

In digging into the latest Census numbers, I have been updating all of our office’s work on housing, household formation, affordability and the like. Homeownership continues to be on the rise and I will get to the latest Peak Renter numbers next week. That said, it is clear that the ownership rebound in recent years is concentrated among younger Oregon households. Halfway down this housing research trail I stumbled upon the following chart. The increase in younger owners is primarily among married-couple families. This is important for housing in that homeownership for married-couple families is 20 percentage points higher than for other household types, and they comprise 60% of all homeowners in Oregon. So off on a detour, down the marriage research rabbit hole I went which we will explore a bit on this Fun Friday.

I have a typical story I tell when giving presentations on how Millennials are indeed getting married, buying homes, having kids and the like. They are not foregoing these major life events, but they are doing so a few years later than previous generations. The story is largely about how the life cycle effect dominates the trends even though there are, at times, sizable generational effects.

In terms of marriage, this next chart shows both the life cycle effect  — the arc of the curves; as we age the share of us who have ever been married increases — and the generational effect — each line represents a birth cohort; some are higher or lower than others. This chart fascinates me. We know that the current crop of Millennials are getting married less compared to the Silent Generation and oldest Baby Boomers. However what I was surprised by is that today’s Millennials aren’t that different than the previous century‘s Millennials (the 1885 birth cohort)! Who gets married and at what age has clearly evolved, and continues to evolve today.

This evolution is very interesting and Cato Unbound had a great set of articles on marriage a few years back including an article by renowned family and marriage researcher Stephanie Coontz, and an article by economists Betsey Stevenson and Justin Wolfers. The kicker is not that Betsy and Justin are great economists in their own right, which they are, or that they are married to each other, which they are, no, the kicker is that they are renowned for their economic research on love and marriage. You can’t make this stuff up; it’s adorable!

What the research finds is that this evolution is in part about the shifting nature of work, in addition to the availability of different products and services that make domestic/household duties easier than in the past. In economic parlance, as Betsy and Justin write in the article, marriage has shifted from a “forum of shared production, to shared consumption.” What that means is marriage is more about love and companionship these days —  a hedonic marriage — and it does give rise to assortative mating and the like. Marriage is no longer primarily about matching specialized workers together — one in the marketplace and one at home.

As this evolution continues, we are seeing the median age rise at which Americans and Oregonians first get married. The latest Census data show that here in Oregon this age reached 30 years old for men and 27.8 years old for women in 2017. As far as I can, given available data, these readings in recent years are a record. That said, they are more of a return to rates seen 100-150 years ago than they are just a divergence from the high marriage rates at younger ages seen in the 1950s and 1960s, which were themselves records in the other direction.

As marital status evolves, we can see the trends by also looking at age cohorts. The number of single, never married Oregonians is rising across all age groups. However this increase, coupled with declining marriage rates is especially seen among the 20-somethings. One other interesting thing to note is that the divorce bubble has clearly burst. Divorce is on the decline in recent decades. In their article, Betsy and Justin discuss how the rise in divorces was in part a response to the shift from marriage being about shared production to being about share consumption. To the extent that marriage today really is about love, companionship, and sharing interests and activities together, then it makes sense that divorce is less frequent.

All told, marriage patterns continue to evolve. Given the generational data, the median age at first marriage will continue to increase at least in the near-term. These shifts also do have wide-ranging impacts throughout the economy. One of which is the impact on household formation and homeownership. At least when compared to a generation or two ago, there is a longer time period from when one leaves the nest and when one settles down, gets married, buys a house, has kids and so forth. There will also be a larger share of Oregonians moving forward who chose to do none, or just some of these things as well. That said, a majority of Oregonians will still chose to do these major life events, but at a somewhat later age than in the recent past.

Stay tuned for at least one future post on birthrates in addition to a follow-up next week on homeownership in Oregon and across the country.

Posted by: Josh Lehner | September 13, 2018

Urban Oregon Household Income, 2017 Update

This morning the Census Bureau released the 2017 American Community Survey data. There is a ton to unpack here and even more once the microdata is released later this year. In the coming months our office will update and share some of this work.

As discussed earlier, Oregon incomes continued to rise and the poverty rate ticked down. This post is a quick update on trends we are seeing across Oregon’s metro areas. For rural income trends, we need to wait until December when the 5 year ACS estimates are released.

First, let’s start with the Rogue Valley where household incomes have seemingly lagged underlying economic growth in recent years. The latest figures show solid gains in both Medford (Jackson County) and Grants Pass (Josephine County). The data is a bit noisy so I usually use a two year average to help smooth it and get the underlying trends. This is especially useful for a smaller area, and thus smaller sample size, like Grants Pass. As you can see in the dotted line (annual numbers) the region has seen two strong gains in the past three years, but also a year of large losses. Expectations are that moving forward, there will be more sustained momentum in the Josephine numbers and incomes will continue to increase. That said, some year to year volatility is to be expected. Medford

Traveling north on I-5 a bit, incomes throughout the Willamette Valley continue to show good growth in the latest data. Salem and Corvallis incomes are now at historic highs, while Albany and Eugene incomes are essentially back to where they were at the start of the Great Recession.

Further north, the Portland region continues to see strong gains. Like the state overall, 2017 increases were a bit slower, but continue to outpace most other large metros across the country. The Portland MSA’s median household income now ranks 16th highest among the nation’s 100 largest metros. In 2007, Portland ranked 32nd highest. As noted in the statewide trends, the leveling out of the poverty rate was also seen in the Portland region. Similarly, the poverty rate differences between racial and ethinic groups was evident in Portland as well. As such, it is reasonable to conclude that outside the Portland area, Oregon’s poverty rates continued to decline.

Finally, let’s cross the mountains and check in on Bend where we know growth has been and continues to be robust. Household income in Deschutes County saw another strong year in 2017 and compared with the other housing bust metros across the country, Bend continues to outperform. Among these 50 metros, Bend’s income growth since the onset of the recession ranks 5th best. Medford, which is also among the worst housing bust metros nationwide, ranks 15th best.

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